Economy Of Aghanistan

Agriculture is considered to be one of the important industry for the country’s growth over the years contributing to over 50% of the total GDP, but the trend is changing as more and more industries are growing giving rise to the economy of the country.

Definition / Scope

Afghanistan economy is considered to be one of the least developed nation in the world. It ranks 175th in the United Nation Development Index. Its unemployment rate is 40% and 36% of the population lives below poverty line. Lack of infrastructure has added to the decline of the industry in the country. Industry scope includes small-scale production of textiles, soap, furniture, shoes & apparels, food-products, cement; hand-made carpets; natural gas, coal, copper, non-alcoholic beverages, fertilizer and mining. The country receives financial aids from the international bodies like World Bank for development and growth of the economy. Kabul is the largest city and considered as the commercial capital. The value of imports has reached over $7500 million.

Market Overview

Agriculture is considered to be one of the important industry for the country’s growth over the years contributing to over 50% of the total GDP, but the trend is changing as more and more industries are growing giving rise to the economy of the country. Afghanistan export value is nearly about $570 million. GDP of the country is estimated to be over $65 billion in 2016. GDP growth declined to 2.1% in 2015 down from 6.5% in 2014, the economy suffers drawbacks due to political and security transition. Service industry is gradually growing in the economy contributing 2.2% for the Afghanistan.

Key Metrics

Metrics

Value

Explanation

Base Year

2016

Researched through internet

Market Risks

Terrorism is one of the major reason for the decline of the economy.

Kidnapping of the people has increased over the years.

Political instability is faced by Afghanistan year after year.

Lack of development of infrastructure.

Lack of basic facilities like water and electricity.

Unskilled labor has been one of the reason for the slow growth of the industrial output.

Purchasing power of the people is very low due to which investment in the consumer goods is risky.

Lack of investment from the government in the development of different industries.

Lack of technology implementation.

Security is the biggest concern for the players in the industry.

Unstable currency.

Top Market Opportunities

Liquidity in the economy is brought by the financial aid provided by the institutions like Wold Bank and IMF.

Mining is one of the sector which is unexplored. This industry will be the key driver for the growth of the economy and money generation for the people in the country.

People are moving their focus to manufacturing and service sector and the contribution is gradually increasing over the years.

70% of the population consists mobile phones so growth in the technology associated to mobile devices can be found in future.

Health care industry is one of the need for the country so there is a huge opportunity of growth in this industry.

Infrastructure industry is one of the upcoming industry for the economy.

Transportation industry is untouched and requires investment from the government.

Market Drivers

International Financial Aid

Investment in infrastructure

Investment in transportation

Steps to fight terrorism

Import of basic commodities

Development of manufacturing and services

Exploration of mining

Agriculture and associated industry

Tie- up with different countries

Economic stability projection

Development of agricultural commodities

Involvement of population in technology gadgets like mobile phones

Market Restraints

Slowdown in the economy

Decline in the investment

More transfer of funds towards fighting terrorism

Unskilled labour

Low income population

35% of the population below poverty line

No proper infrastructure

Unequal gender participation in the corporates

Afghanistan is the second most corrupt countries in the world

Heavy imports leads to the problems for the domestic industries

Currency fluctuation

High tax rate for the foreign investment

Complicated legal structure

Dominance by the tribals and warlords

Lack of electricity and clean water for survival

Lack of promotion from ministry

High Corruption and bribery in the government bodies

Industry Challenges

Lack of promotion by the industrial ministry making Afghanistan as attractive industrial hub.

Bribery is one of the drawback faced by the businessmen setting up companies in the economy. Every official has to be offered with small gifts for approvals.

Tribals and warlords permission is needed to setup industry. A percentage of profit has to be shared with them.

Cost of electricity and clean water is very expensive making the cost of production higher.

Import of goods from other countries making the domestic production lose market share in the country.

Unskilled labor is one of the major concern for the industrialists.

Lack of control over corruption.

Technology Trends

There is increase in the number of mobile phone users over the years.

The government lack basic technology infrastructure.

Technology growth is quite stagnant in the economy.

Technology know-how is imported in the country.

No proper infrastructure for the technology development.

Technology is not implemented in different industries.

Cost of technology goods is quite higher because of higher import duties.

Pricing Trends

The cost of production is higher because of the population because of the following factors

Electricity

Water supply

Cost of training people

Bribery to the government officials

Bribery to warlords

Poor liquidity in the economy

High cost of investment

Regulatory Trends

The government is having tie-ups with different countries for bilateral trade agreement.

Government is brining big investors in the country for investment in different industries.

Government is trying to bring liquidity by the international financial aid.

Promotion of specialized commodities to other countries.

Improving legal framework for investment in different industry.

Strengthening the financial market for more FII.

Working towards the security of the people.

Government is taking initiatives for the development of logistics sector and allowing private companies to participate in the industry and bring rapid growth and employment to the people.

Development of mining industry and providing opportunities to other industries associated with mining.

Other Key Market Trends

Traditionally Afghanistan was depended on the agricultural commodities contributing to over 60% to the GDP. The government has understood the need for development of other industries. In the last 5 years manufacturing and service has been growing slowly but increasing the contribution to the GDP. Mining and logistics are showing rapid growth in the country and the trend is going to continue in the coming years. Unexplored potential is still on the way and it creates revenue and jobs to the people.

Market Size and Forecast

According to the data published by tradingeconomics, Afghanistan exported products valued at $570 million in 2015 and is expected to grow at a faster pace in the coming years. Major contributions for the exports materials are as follows

Tropical fruits- 9.6%

Grapes- 9%

Spice seeds- 7.9%

Insect Resins- 5.4%

Other Nuts- 3.9%

Dried Legumes- 2.6%

Onions- 2.5%

Perfume plants- 2.2%

Raw cotton- 18%

Coal briquettes- 6.8%

Scrap Iron- 5.4%

Carpets- 4.3%

According to the data published by tradingeconomics, Afghanistan imports valued at $7729 million in 2015. There is gradual decline in the imports over the last 3 years declining at the rate of 7%. Major contribution of imports are as follows.

Cement- 16%

Refined petroleum- 7.5%

Wheat flours- 5%

Cars- 2.6%

Raw sugar- 4.0%

Yarn fabric- 2.4%

Market Outlook

The country is increasing its exports in the commodities to other countries. US, France, India and Pakistan are the exporting countries. The growth of the exports increasing by 5-8% yearly from the past 5 years. Manufacturing and construction is increasing in the economy due to which cement becomes the major importing material for the country. However the government is able to reduce imports from different countries. South Korea, Japan, Turkmenistan, Kenya, USA, Russia Germany, and Pakistan are the importing countries. The rate of import is decreasing by 7% over the last 3 years.

Technology Roadmap

The telecom industry has invested over $1 billion in the economy for the development of telecommunications in the country, due to which the mobile subscribers are getting doubled every year. The government is brining technology from the developed country for the technology infrastructure. Implementation of technology in done by training the people. Development of mobile technology is on rise.

Distribution Chain Analysis

Afghanistan has major ring roads connecting different places but are at a damaged situation. Logistics is a major challenge for the industry. Transportation of goods and services takes a long time to move from one part of the country to another part. Sometimes the goods are routed through Pakistan and Iran to save costs of transportation.

Competitive Landscape

The major competition is from the imported goods from different parts of the world.

Cheap availability of raw materials.

Less number of domestic players.

Current investment is very less.

A huge market to tap.

Workforce is very cheap.

Accessibility to the Middle Eastern countries.

Bilateral trade with different countries which serves an opportunity to export goods.

Possibility of high risk and high returns.

The government is keen for more investment by foreign investors.

Competitive Factors

Land
Less number of domestic players
Opportunity in different industry
Workforce
Consistent demand over the years
Change in the legal structure of investment
Domestic participation in the development of different industry
Capital inflows in the economy
Cheap raw materials for finished goods
Easy accessibility to MENA region

Key Market Players

Safi Group of Companies

Alakozay Company

Azizi Hotak Group

Kam Airways of Kamgar

Najeeb zarab Limited

Habib Gulzar Non-Alcoholic Beverages Ltd

Afghan Wireless (AWCC)

Hamed Baba Ltd

Barakat group

Strategic Conclusion

Afghanistan growth is declining despite of the efforts by the government and international bodies but there are huge potential of growth in the economy. Terrorism is one of the major hurdle for the decline in the growth. The government has to take major steps for the development of the people and industry to generate revenue for the country and the citizens.